After the Fall of the Berlin Wall: Some Lessons on Transition

Lorraine Telfer-Taivainen

The European Bank for Reconstruction and Development (EBRD) in London was the setting on 19 June 2012 for the launch of the recent UNU-WIDER book Economies in Transition: The Long-Run View, edited by Gerárd Roland, and published by Palgrave Macmillan.

The event kicked off with a panel discussion chaired by Erik Berglöf, EBRD’s Chief Economist, along with Gerárd Roland (University of California at Berkeley), André Sapir (Bruegel), and Rania Al-Mashat (Central Bank of Egypt). The main findings of the UNU-WIDER research project on transition economies—initiated in 2009 on the twentieth anniversary of the fall of the Berlin Wall—were presented in detail, focussing on the long-term development of the former Soviet bloc and parts of Central Asia. Topical issues included institutional development, employment, demographic trends, education, health, fertility rates, the role of civil society, as well as the future economic prospects of the transition economies.

From left to right, André Sapir, Rania Al-Mashat, Erik Berglöf, and Gerárd Roland. European Bank for Reconstruction and Development, London, June 2012.

In the two decades and more since the fall of the Berlin Wall the former centrally planned economies have taken somewhat different paths to becoming free market economies. Most of the Central European countries have successfully achieved economic transition and democracy and many are now in the fold of the EU, although they face difficulties in today’s financial crisis. In contrast much of the Soviet Union is characterized by either fragile democracy or authoritarianism—the Baltic states being a notable exception. There is a wide variance in the quality of institutions across the transition countries, and this influences, and interacts with, their political and economic capabilities. Inequality is a concern in the transition group. The distribution of wealth and income has become very similar to more established market economies, with increasing disparities between the high- and low-income groups and large-scale privatization mostly benefitting the top income deciles. Interestingly, democracy and the privatization of small-scale enterprises have proven beneficial to lower income deciles.

Many observers are taking a fresh look at the transition experience and the light it might throw on the ‘Arab Spring’. Parts of the Middle East and North African (MENA) region are undergoing a political transition, which is in part affected by, and affects, their economic transitions—including the economic reforms of recent years. What lessons can be learned from the earlier transitions? The EBRD-UNU-WIDER event had a lively discussion on this issue.

One conclusion from the debate in London is that while technical policy-making is crucial, close attention needs to be paid to history, norms, and the culture of the various countries. The forces for and against reform must be taken into account, especially vested (elite) interests which can either ameliorate or skew the transition process. Rigorous evaluation of past transition polices—successful and failed—should inform policy thinking.

The former centrally planned economies and their respective development stories are not an exact blueprint for the situation in the MENA region today. However, this forward-looking UNU-WIDER book should provide much inspiration for regional policy makers on possible ways to manage transitions to better achieve economic reform and democratization. In that sense, the lessons of Central Europe and the former Soviet Union remain relevant to today’s policy dilemmas, in the MENA region especially.